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  • Writer's pictureRealFacts Editorial Team

How One Borrower Is Faring With Extend and Pretend


Seagram building

The Seagram Building, a timeless masterpiece of Deco design in New York City, is currently in the spotlight for reasons beyond its architectural splendor. RFR Realty, the building's owner, has just exercised its second one-year maturity extension on the $764 million loan that finances this historic property. The move highlights the complex financial landscape facing commercial real estate in today's "higher-for-longer" interest rate environment.


Struggles and Recovery


RFR Realty's financial journey with the Seagram Building has been fraught with challenges. After Wells Fargo, the building's largest tenant occupying 250,000 square feet, relocated to 30 Hudson Yards in 2021, occupancy plummeted from a robust 94% to a concerning 63%. This significant vacancy posed a substantial hurdle for the owners, compelling them to take decisive action.


In response, RFR Realty invested $25 million into the property, a strategic move that paid off by attracting new tenants and significantly boosting occupancy to 97% by the end of 2023. However, this recovery is tinged with caution as 15% of the leases are set to expire within the next two years, underscoring the ongoing volatility in the commercial real estate market.


The Extension Game


RFR Realty's decision to extend the loan maturity twice reflects a broader trend in the industry known as "extend and pretend," where borrowers negotiate extensions with lenders rather than facing the immediate pressures of refinancing or foreclosure. The initial extension, granted in May 2023, included a prepayment of $13.75 million on the principal, likely a condition of the extension agreement.


This approach has allowed RFR Realty to maintain control of the Seagram Building amid a challenging refinancing environment, where elevated interest rates have made securing new loans increasingly difficult. The company's ability to negotiate these extensions indicates lenders' willingness to accommodate borrowers who show a commitment to their properties and an ability to make partial repayments.


Broader Market Implications


RFR Realty's situation is emblematic of wider trends in the commercial real estate market. According to Trepp, a notable increase in special servicing on CMBS loans was observed in April, with an 80-basis point rise month-over-month. This increase highlights the financial distress spreading across various property types. Notably, retail properties saw special servicing rates climb by 105 basis points to 10.85%, and office properties experienced a 53-basis point increase to 10.84%.

Multifamily properties also saw a significant jump in special servicing rates, which rose by 269 basis points to 5.10%, surpassing the 5.00% mark for the first time since June 2017. These figures underscore the pervasive challenges in the commercial real estate sector, driven by shifting market dynamics and the lingering impacts of the COVID-19 pandemic, which has accelerated the adoption of hybrid work models.


Looking Ahead


As RFR Realty navigates its financial path with the Seagram Building, it faces an uncertain future marked by potential lease expirations and continued high interest rates. The company's ability to manage these challenges will be crucial in maintaining the building's occupancy and financial stability.

The case of the Seagram Building illustrates a broader narrative within the commercial real estate industry, where property owners are employing various strategies to cope with an evolving market. Extend and pretend may offer temporary relief, but the underlying issues of refinancing in a high-rate environment and adapting to new tenant expectations remain significant hurdles.

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